Police have descended on a farming community just outside the New South Wales town of Hay in the search for remains of Donald Mackay, an anti-mafia campaigner murdered 36 years ago.

The Australian federal police and the NSW unsolved homicide team set up on two neighbouring Riverina properties on Wednesday, cordoning off an area of around 1,500 sq metres.

Mackay, a Liberal party candidate for the seat of Griffith, was assassinated on 15 July 1977 but his body was never found.

He was a high-profile campaigner against organised crime, and shortly before his disappearance Mackay had outed a mafia drug ring to NSW police.

NSW police have said they are remaining “realistic” about the search. The head of the NSW homicide squad, detective superintendent Mick Willing, told media on Thursday “there have been many searches over many years and this is the latest.”

Willing said the Mackay family was informed before the searches began.They are concentrating on an area around 30 metres by 50 metres but will expand that area “if necessary.”

News Limited reports the search began after police received a tip-off that Mackay’s body was disposed of down a well on the farm.

John Mirabella, owner of a nearby property, told ABC News he was approached by police asking about a disused mine on his land before they moved their search to the current area.

"They've got an area of about 60 metres by 60 metres which is fenced off and they've got a small bobcat digging out the bottom of a small dam," said Mirabella.

A royal commission found Mackay was killed by a hitman employed by the mafia, and identified six people believed to be involved with the murder.

Three people were convicted in a Victorian court of conspiracy to murder. A former investigator for the royal commission, Clive Small, told ABC News he did not think any discovery would prompt murder charges.

"The evidence that would be involved in a murder prosecution is the same evidence that would have been used in the conspiracy to murder charge and that evidence can't be used twice,” said Small.